Press Release: Novartis delivers 12% sales and 21% core operating income growth from continuing operations (in cc(1)). Executes Sandoz spin-off, achieves imp...

Ad hoc announcement pursuant to Art. 53 LR

-- Transformation into a "pure-play" innovative medicines business is

complete, with the spin-off of Sandoz; commentary below is on continuing

operations2

-- Q3 sales grew +12% (cc, +12% USD) with core operating income growing +21%

(cc, +17% USD)

-- Growth driven by continued strong performance from Kesimpta (+124%

cc), Entresto (+31% cc), Kisqali (+76% cc), Pluvicto (+217% cc)

and Scemblix (+157% cc)

-- Q3 operating income grew +13% (cc, -4% USD) driven by higher sales and

lower restructuring charges, partly offset by higher impairments through

discontinuation of early stage development projects

-- Q3 net income grew +37% (cc, +14% USD) mainly due to higher operating

income

-- Q3 free cash flow3 was USD 5.0 billion (+24% USD) driven by higher net

cash flows from operating activities

-- Q3 core EPS grew +29% (cc, +24% USD) to USD 1.74

-- Strong nine months performance with sales growing +10% (cc, +8% USD) and

core operating income growing +19% (cc, +13% USD)

-- Q3 key innovation milestones, including positive Ph3 data for multiple

pipeline assets with blockbuster potential:

-- Cosentyx -- FDA approval for intravenous formulation in three

indications (PsA, AS, nr-axSpA)

-- Demonstrated clinically meaningful and statistically significant

Ph3 data for: 1) Pluvicto (mCRPC pre-taxane), 2) iptacopan (IgAN),

3) remibrutinib (CSU), 4) Lutathera (GEP-NETs)

-- Kisqali -- Ph3 NATALEE iDFS 500 event analysis complete; file

submitted in EU, US submission planned for Q4 2023

-- Initiated previously announced, up-to USD 15 billion share buyback to be

completed by year-end 2025

-- Full-year 2023 guidance raised for core operating income based on strong

momentum4

-- Net sales expected to grow high single digit

-- Core operating income expected to grow mid to high teens (from low

double digit to mid teens)

Basel, October 24, 2023 -- commenting on the quarter, Vas Narasimhan MD, CEO of Novartis, said: "Novartis delivered a very strong quarter, with double-digit sales and core operating income growth leading to a further upgrade to 2023 guidance. We have successfully executed the spin-off of Sandoz, allowing us to fully focus on high-value innovative medicines. Our growth drivers, including Kesimpta, Entresto, Kisqali and Pluvicto, continue to perform well in the market. Our robust pipeline also continues to deliver, and we have achieved important innovation milestones for Pluvicto, iptacopan, remibrutinib and Lutathera. We are confident in our mid-term growth outlook and remain committed to creating value for our shareholders."

Key figures(1)

Continuing operations(2)

----------------------------------------------------------

Q3 2023 Q3 2022 % change 9M 2023 9M 2022 % change

USD m USD m USD cc USD m USD m USD cc

------- ------- ----- --- ------- ------- ----- ---

Net sales 11 782 10 492 12 12 34 017 31 630 8 10

------- ------- ----- --- ------- ------- ----- ---

Operating income 1 762 1 826 -4 13 7 187 6 191 16 31

------- ------- ----- --- ------- ------- ----- ---

Net income 1 513 1 330 14 37 5 934 4 734 25 41

------- ------- ----- --- ------- ------- ----- ---

EPS (USD) 0.73 0.61 20 45 2.84 2.16 31 49

------- ------- ----- --- ------- ------- ----- ---

Free cash flow 5 043 4 054 24 11 019 8 661 27

------- ------- ----- ------- ------- -----

Core operating

income 4 405 3 772 17 21 12 551 11 149 13 19

------- ------- ----- --- ------- ------- ----- ---

Core net income 3 585 3 035 18 23 10 320 8 983 15 22

------- ------- ----- --- ------- ------- ----- ---

Core EPS (USD) 1.74 1.40 24 29 4.95 4.09 21 28

------- ------- ----- --- ------- ------- ----- ---

(1) Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 48 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. (2) As defined on page 37 of the Condensed Interim Financial Report, Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing Corporate activities and Discontinued operations include operational results from the Sandoz business. (3) Effective January 1, 2023, Novartis revised its de nition of free cash ow, to de ne free cash ow as net cash ows from operating activities less purchases of property, plant and equipment. To aid in comparability, the prior year free cash flow amounts have been revised to conform with the new free cash flow definition. See page 48 of the Condensed Interim Financial Report. (4) Please see detailed guidance assumptions on page 8.

Strategy update

Our focus

Novartis has completed its transformation into a "pure-play" innovative medicines business, with the successful spin-off of Sandoz. Our focus is now centered on four core therapeutic areas (cardiovascular, renal and metabolic; immunology; neuroscience, and oncology). In each of these areas, we have multiple significant in-market and pipeline assets, all of which address diseases with a high burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies -- the US, China, Germany and Japan.

Financials

Following the September 15, 2023, shareholders' approval of the spin-off of the Sandoz business the Company reported its consolidated financial statements for the current and prior years as "continuing operations" and "discontinued operations."

Continuing operations include the retained business activities of Novartis, comprising the Innovative Medicines Division and the continuing corporate activities. Discontinued operations include the Sandoz Division and selected portions of corporate activities attributable to Sandoz's business, as well as certain expenses related to the spin-off.

With the spin-off of the Sandoz business, Novartis operates as a single global operating segment, being a focused innovative medicines company.

The commentary below focuses on continuing operations. We also provide information on discontinued operations, which mainly includes Sandoz and allocated corporate activities.

Continuing operations

Third quarter

Net sales were USD 11.8 billion (+12%, +12% cc) driven by volume growth of 17 percentage points. Pricing had a negative impact of 1 percentage point and generic competition had a negative impact of 4 percentage points.

Operating income was USD 1.8 billion (-4%, +13% cc), mainly driven by higher sales and lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.

Net income was USD 1.5 billion (+14%, +37% cc), mainly due to higher operating income and lower tax rate driven by non-recurring items. EPS was USD 0.73 (+20%, +45% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 4.4 billion (+17%, +21% cc), mainly driven by higher sales. Core operating income margin was 37.4% of net sales, increasing by 1.4 percentage points (+2.7 percentage points cc).

Core net income was USD 3.6 billion (+18%, +23% cc), mainly due to higher core operating income. Core EPS was USD 1.74 (+24%, +29% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.

Free cash flow amounted to USD 5.0 billion (+24% USD), compared with USD 4.1 billion in the prior year quarter driven by higher net cash flows from operating activities.

Nine months

Net sales were USD 34.0 billion (+8%, +10% cc) driven by volume growth of 16 percentage points. Pricing had a negative impact of 2 percentage points and generic competition had a negative impact of 4 percentage points.

Operating income was USD 7.2 billion (+16%, +31% cc), mainly driven by higher sales, other income from legal matters, lower restructuring charges, partly offset by higher impairments through discontinuation of early stage development projects.

Net income was USD 5.9 billion (+25%, +41% cc), mainly due to higher operating income. EPS was USD 2.84 (+31%, +49% cc), growing faster than net income, benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 12.6 billion (+13%, +19% cc), mainly driven by higher sales. Core operating income margin was 36.9% of net sales, increasing by 1.7 percentage points (+2.9 percentage points cc).

Core net income was USD 10.3 billion (+15%, +22% cc), mainly due to higher core operating income. Core EPS was USD 4.95 (+21%, +28% cc), growing faster than core net income, benefiting from lower weighted average number of shares outstanding.

Free cash flow amounted to USD 11.0 billion (+27% USD), compared with USD 8.7 billion in the prior year period driven by higher net cash flows from operating activities.

Discontinued operations

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October 24, 2023 01:00 ET (05:00 GMT)